News Analysis: Why U.S. court sides with Chinese company in dispute with Obama?

WASHINGTON, July 20 (Xinhua) -- The Chinese-owned Ralls Corp. has hardly expected it could win an appeal against the Obama administration over an investment dispute recently.

The unprecedented victory is likely to push the U.S. government to bring at least a little more transparency to its secretive national security review process.

The U.S. Circuit Court of Appeals for the District of Columbia has ruled that President Barack Obama and the Committee on Foreign Investment in the United States (CFIUS) failed to give a constitutional due process to Ralls Corp., which was denied for national security reasons the right to owning wind farms in Oregon. It was the first time that CFIUS was appealed by a foreign company and lost the case.

In 2012, the intended deal by Ralls Corp., a subsidiary of China's machinery conglomerate Sanyi Group, was blocked by Obama and CFIUS because the wind farms were too close to a military facility. Ralls Corp. sued Obama and CFIUS, an inter-agency committee that assesses national security implications of mergers, for exceeding constitutional rights and failed to provide detailed evidence.

The national security review in the United States is traditionally opaque, and U.S. president and CFIUS have the power to block any deal if they consider national security is threatened. Companies have been reluctant to legally challenge the government's decisions because it was believed the government had broad authority in these matters so any lawsuit would largely fail.

"We conclude that the President Order deprived Ralls of its constitutionally protected property interests without due process of law," the court said, adding that "due process requires, at the least, that an affected party be informed of the official action, be given access to the unclassified evidence on which the official actor relied and be afforded an opportunity to rebut that evidence."

"The ruling does not question the final decision made by the U.S. government, but the legitimacy of the process of the decision-making," Clay Lowery, former assistant treasury secretary and vice president for Rock Greek Global Advisors, told Xinhua.

"It could push CFIUS to have a deeper discussion with the filing parties about what the real issues of concern that are not classified are and find out what companies could do to mitigate the concerns," Lowery said, admitting that "currently the review process does not seem to be managed in a way that allows for this type of openness."

Chinese investment in the United States has been growing rapidly in recent years, and a number of Chinese companies failed to pass the national security review.

The most eye-catching case is China National Offshore Oil Corporation's failed attempt to bid for Union Oil Company of California in 2005.

China's IT heavyweight Huawei is banned from making any investment in the United States, as the country sees telecommunications as one of its most sensitive sectors for foreign investment.

Although CFIUS is widely expected to make some changes, Lowery said it is unrealistic to think a considerable amount of information will be released by the committee, because it uses too much classified material to be disclosed. The U.S. government has laws and regulations about what information can be classified.

"This case could nonetheless open up huge issues pitting intelligence agencies that do not want to make public what they know versus U.S. legal issues of due process and equal treatment, versus WTO and Bilateral Investment Treaty (BIT) issues of non-discrimination and most-favored-nation," Theodore Moran, a senior researcher with the Peterson Institute for International Economics, told Xinhua.

China and the United States have been pushing for the BIT talks, and how to narrow the U.S. national security review is a major concern of China.

At the annual U.S.-China Strategic and Economic Dialogue, the United States promised to apply the same rules and standards when reviewing foreign investment projects and continue the review procedure in case of China.

While what the United States could do is limited, it does not want to tarnish its image as a nation open for foreign investment.

Treasury Secretary Jacob Lew said earlier this month that Washington welcomed investment from China and underlined that Chinese investment in the United States were growing dramatically and the number of Chinese investment that had been approved vastly outnumbered the very few items that were not approved.

The most recent case under CFIUS's review is Chinese IT giant Lenovo's purchase of the low-end server business of International Business Machines Corp.(IBM). Bloomberg reported last month that the two companies had sought more time for the U.S. national security review as tensions between the two countries rose over spying and hacking claims.

As the Obama administration is widely expected to appeal the case to the Supreme Court, Ralls Corp's victory is considered as temporary, and would face tedious legal process ahead.

Lowery said Chinese companies should be well prepared for going through the review if their investment operates in sensitive sectors.

As many Chinese companies have links with the Chinese government, they may face higher level of scrutiny, he added.